Heidelberg Materials Withstands Significant Cost Pressure in Q3; Shares Are Cheap

Operating performance at narrow-moat HeidelbergCement, now known as Heidelberg Materials, continues to track in line with our expectations after reporting a solid third quarter. Similarly to the rest of the building materials sector, significant price increases have been implemented to offset cost pressures, which resulted in quarterly revenue and EBIT growth of 15.7% and 1.5%, respectively. However, unlike peers and despite its new business name, Heidelberg Materials’ financial performance remains the most exposed to heavy building materials, which is energy-intensive, and therefore while top-line performance was in line with its closest competitor, Holcim, Heidelberg Materials' profit growth underperformed. Our full-year operating profit forecasts fall at the midpoint of the quantitative guidance that management specified this quarter. We reiterate our EUR 77 fair value estimate and view shares as deeply undervalued. We believe investment sentiment against cement producers is epitomized by both the company’s depressed 7 times earnings multiple on 2023 earnings and the recent removal of "cement" from its name.